The Uber-Grab deal may be a short-term positive for ComfortDelGro, but it’s premature to bet on the stock re-rating, Deutsche Bank said in a note dated Monday.

The investment bank said it expected competition regulators were unlikely to approve the Uber-Grab deal until new government transportation regulations come into play; it noted that the deal appeared to contravene Singapore’s Competition Act.

Rationalising subsidies?

“We think that Uber-Grab would rationalize by easing private-hire car (PHC) subsidies for drivers and commuters – similar to what happened in China when Uber merged with Didi Chuxing,” it said. “CD driver attrition would also stabilize, given that earnings from driving a taxi would be more than unsubsidized PHC drivers.”

But ComfortDelGro would still face competition and other risks, it said.

“Competitive pressures on CD would remain from lower taxi rental and Grab booking network offered by other taxi companies,” it said.

It pointed to potential risks, such as if Grab were to subsidise non-Comfort drivers or to purchase a taxi company, or if the Uber-Grab deal were to exclude Comfort from its booking system. But it also saw upside risks, such as if Comfort’s deal to buy a controlling stake in rental car company Lion City Rental from Uber were to fall apart or if the government issues “robust and timely” regulations for the sector.

It kept a Hold call with S$2.20 target price.

The stock was down 0.49 percent at S$2.03 at 2:18 P.M. SGT on Tuesday.